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Two-Tier Tax Hampers Condo Development

Admit it- you’ve envied other cities that were sprouting condominium developments on what seemed like every corner during the recent real estate boom.  A growing economy and population helped.  Those cities were also unlikely to penalize new condominium construction like Buffalo does.  Here, a two-tier property tax system puts the screws to new condominium development.

Due to the tax code, newly constructed condominiums are taxed at full-market value.  On a $300,000 unit property taxes are approximately $7,500/year.  But if that same unit is created in a rehabbed building or converted from an existing rental unit, taxes are approximately 40 percent cheaper.  For potential new condo buyers, that potential tax bill is an eye opener and potential game changer. 

“Real Property Tax Law 339y requires new build condos to be assessed at market value, the same manner of arriving at an assessed value used for assessing any other new build residence, and all other residential property for that matter,” says Buffalo’s Assessment and Taxation Commissioner Martin F. Kennedy. 

The law “requires rehab projects, conversion projects, buildings being rehabbed into condos, to be assessed on an ‘as if’ basis; i.e., as if they were apartments, taking into consideration the rental such an apartment would generate and base the new assessed value on the subjective projected income basis” according to Kennedy.

The City’s system of property taxes generally imposes a minimal burden on one- to three-family houses, and makes up the revenue shortfall by exorbitantly taxing multi-family rental buildings and commercial properties.  It also treats new condominiums similar to new commercial development.

“The tax system discourages new construction,” says one local developer wishing to remain nameless.  “It makes no logical sense.  It really isn’t Buffalo penalizing the condo developers, it is the NY State condo law that has this inexplicable exception for municipalities, like Buffalo and Rochester, that have two-tier taxing systems.”

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The City of Rochester is addressing the problem.  Rochester officials collaborated with the Monroe County IDA to create an abatement program for owner-occupied housing built downtown. 

The Core Housing Owner Incentive Exemption (CHOICE) offers property tax exemptions for the creation of market-rate, owner occupied residential units in the Center City District.  The exemption applies to any new owner-occupied unit created through new construction, renovation, or conversion from existing residential rental units.  Property taxes are abated 90 percent in the first year and increase annually by ten percent and become fully-taxed in year ten. 

Developers have taken notice.

Capron Street Lofts is a 19 unit loft-style condo conversion off of South Avenue in downtown Rochester.  Developer Patrick Dutton told RNews that owner-occupied housing units are good for downtown and the city.  “Renters come and go in for 12 months, 24 months. Homeowners are there to stay for 20 years, they really contribute to the community more than does a renter,” said Dutton.

Rochester also assists rental conversion projects.  The Commercial Urban Exemption Program (CUE) offers property tax exemptions for non-residential properties converted to mixed-use downtown. The intent of the program is to facilitate the conversion of underutilized office, retail, manufacturing and warehouse buildings into mixed-use market-rate rental residential use.  An exemption applies to the increase in assessed value attributable to the conversion to mixed-use.  The increase is abated 100 percent for the first eight years, and then phases in with 20 percent increases until the abatement ends in year 13.  

Locally, the Erie County Industrial Development Agency recently adopted an adaptive reuse policy.  More on that initiative in a future post.   

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Buffalo’s taxes on residential buildings are not minimal, although it is lower per thousand assessed than the surrounding suburbs.  Switching to a one tier system is highly unlikely.  If it did so the taxes on residential properties would discourage home ownership in the city. 
“There are two solutions,” says the developer, “change the condo law or do something like Rochester is doing.”

According to Kennedy, “developers who say the ‘extreme’ taxes on new condos are a big hindrance to building and marketing them may be correct.  However there is another very strong school of thought that says the lesser assessments on very expensive condos in a conversion or rehabbed building are totally unfair and unjust to all the other homeowners and taxpayers.”

“This is without a doubt highly contentious legislation that many across New York State are trying to have rescinded or at best changed,” says Kennedy.

Numerous other cities have incentivized residential investment.  Similar to Rochester, abatement programs to spur residential development are in place in Philadelphia and Columbus.  Buffalo, at a minimum, should work to remove the disincentives.

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Written by Buffalo Rising

Buffalo Rising

Sometimes the authors at Buffalo Rising work on collaborative efforts in order to cover various events and stories. These posts can not be attributed to one single author, as it is a combined effort. Often times a formation of a post gets started by one writer and passed along to one or more writers before completion. At times there are author attributions at the end of one of these posts. Other times, “Buffalo Rising” is simply offered up as the creator of the article. In either case, the writing is original to Buffalo Rising.

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